Tenth Circuit Holds That the False Claims Act Does Not Protect Post-Employment Retaliation

On November 6, 2018, the U.S. Court of Appeals for the Tenth Circuit handed down a decision that impacts employers across all industries, including the financial services industry. In a “win” for employers, the Tenth Circuit ruled that “…the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts which occur after the employee has left employment.” Potts v. Center for Excellence in Higher Education, Inc., No. 17-1143 (10th Cir. Nov. 6, 2018).

The False Claims Act (“Act”) imposes liability on any person who knowingly defrauds the federal government. See 31 U.S.C. § 3729(a). The Act also contains an anti-retaliation provision protecting whistleblower employees from certain retaliatory acts by their employers. In Potts, the Tenth Circuit determined that the Act’s term “employee” includes only persons who were current employees at the time of the alleged retaliation.

The case involved Debbi Potts who resigned from her position as the campus director of an educational organization in July 2012. In connection with her resignation, Potts entered into a separation agreement with her employer in which she, among other things, agreed to not disparage the organization or “contact any governmental or regulatory agency with the purpose of filing any complaint or grievance.” Notwithstanding the agreement, and well after her resignation, Potts sent a disparaging email and filed a complaint to the organization’s accreditor alleging deceptions in maintaining accreditations. The organization brought a breach of contract claim against Potts for violating the agreement. Potts countersued alleging retaliation because the organization’s claim violated the False Claims Act since her complaint was protected activity.

The Tenth Circuit affirmed the dismissal of Potts’s retaliation claim by finding that “the False Claims Act, by its list of retaliatory acts, temporally limits relief to employees who are subjected to retaliatory acts while they are current employees.” The Tenth Circuit relied on established statutory interpretation canons in reaching its conclusion. Accordingly, in the Tenth Circuit, a former employee cannot engage in protected activity after termination of employment and as a result cannot maintain a cognizable claim under the Act for purported retaliation for such protected activity. This approach is consistent with the interpretations of other courts which have considered this same issue.

While the decision may provide some relief to employers, they should still proceed with caution in taking action against employees for raising violations of the False Claims Act or other laws. Moreover, there are regulatory opinions and actions which employers should carefully consider with their employment counsel in drafting separation agreements as certain regulators prohibit employers from having separation agreements that contain overbroad restrictions (i.e., restrictions that may impinge on employees’ rights to report unlawful practices or occurrences to the SEC or other governmental agencies).